Tuesday, September 20, 2011

Keynesian Anecdote

By the estimates of [Christina Romer's] Council of Economic Advisers, at a cost of $100,000 per job, $100 billion would mean one million new jobs. "A million people is a lot of people."

Obama was unenthusiastic. Romer, in meeting after meeting, came back with new plans, new ways either to locate $100 billion or pitch it to Congress. Her appeals were passionate. She said they were falling into a "The perfect is the enemy of the good" trap. It's about doing something, anything."

The focus on jobs irrespective of whether they pass a cost-benefit test, highlights the worldview of Keynesians, where spending on anything when unemployment is high, is a good thing via the magic of the multiplier. Further, spending $100k per job is good because it's a million jobs. One wonders if there's a price at which it would not be attractive.

7 comments:

Dipper
said...

spot on.

furthermore, If the only thing that matters is the amount of spending,not what its spent on, then all the power lies with the people spending the money and not with the people its being spent on. So its a device for removing the power from individuals to shape their own destiny through their own efforts.

And it doesn't pass the Germany test. ie you can't imagine the German government just sending without regard to what its being spent on. So its probably a bad idea.

karl marx arrived at his conclusions about social organization because corporations and governments don't "die" like all other producer-consumers on earth. the assets and money collect in large entities that cannot consume or invest equal/near to their income.

keynes, functionally, approached the subject from a macro view by focusing on aggregates. he figured out that the entire system needs X, but who gets what was outside of his scope. his work has been popular to central bankers because almost the entire world has poor statistical record keeping, so the only way to manage monetary policy is by using the only stats you have available: macro aggregates.

while there is significant overlap in lifestyle budgetary requirements, people do have varied preferences while at the same time having varied productive capabilities.

is there such a thing as an obese lion? the only obese creatures you will find on this earth are "domesticated."

the ultimate end of this process of money puddling in large corporations and governments is war. there will be war because people will fight to survive by whatever means they deem necessary. was is about property rights and resource distribution.

so mock the myopic view of the keynesian/communist/socialist, but understand that there is more truth there than even they even appreciate.

this is FAR more complex than any silly plan to hand $100k to 1mm people regardless of the cost/benefit. the stakes are MUCH higher too!

riddle:

20 peaceful people in a room and 1 nutjob walks in and acts violently towards the 20. how many violent people are now in the room?

100,000 $/job is reasonable if it a productive job. When Intel was selecting the country where to establish its next fab, Ireland, Israel and other offered more than that to attract Intel. Israel paid hundreds of millions cash to Intel and since then Intel paid much more in taxes. It is considered one of Netanyahu's best decisions.

Having Intel fab in Kyriat Gat, a small development town in Northern Negev, has generated a number of benefits. In my personal opinion, the largest benefit is that it brought American managers to Israel, they introduced American quality standards and mentality (dont forget we are Middle East). Intel is a school for the Israelis. But Intel, in its PR material, emphatizes that in a few years it paid more taxes than the subsidies received to build its fab in the desert. And its export figures that are impressive.

$100K per job is hardly an unreasonable figure (no doubt why Romer used it). Imagine a small business with $1 million to invest in a start-up, I'd be surprised if it created more than ten jobs. However, unless that investment produces something consumers want to buy, it's wasted money that makes the country poorer.